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A successful pilot implemented in the Indian state of Bihar paves the way for scaling of index-based flood insurance in India.

As the most flood-prone state in India, Bihar issues forth a picture of death and destruction almost every single year. In this East Indian state bordering Nepal, 76% of the population lives under the recurring threat of floods. Vulnerability is particularly intense for the millions of smallholder farmers who watch as the deluge destroys their crops each year. Last year alone, nearly 17 million people in the state were affected by flooding, and a 9 year-long record for number of deaths was surpassed.

Such recurring disasters have time and again called for preparedness rather than reactive actions. To facilitate such preparedness, the International Water Management Institute (IWMI)—with support from the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), and in collaboration with the CGIAR Program on Land, Water and Ecosystems (WLE), Indian Council of Agricultural Research (ICAR), Agriculture Insurance Company of India (AICI) and Swiss Re, a leading global reinsurer—has successfully piloted the Index Based Flood Insurance Scheme (IBFI) with 200 farm households in Muzaffarpur district in Bihar. IBFI enables insurers to provide compensation to flood-affected households quickly, particularly during localized and mid-season flooding events, ensuring timely access to finance for smallholder famers, which helps them utilize residual soil moisture to produce crops before the next crop season.

Index-based flood insurance pays out

In IBFI's novel approach, advanced modeling techniques using satellite data enable quick insurance pay-outs to flood-affected farmers. Within the pilot area, floods had affected 36,620 hectares of paddy, primarily around Madhurpatti and Bhatgaon villages. Through IFBI, remote-sensing data and simulation modeling were used to provide regular updates on flooding to the Emergency Operation Centre of the Disaster Management Department in support of relief operations and damage assessment.

For the pilot, the AICI agreed to pay out money to farmers based on scientific data indicating the actual depth and duration of flood waters in the paddy fields. In the initial stage of the pilot, which covered rice crops for the 2017 monsoon season (from early July until the end of October), the insurance product was fully subsidized, with the project making premium payments on behalf of the farmers, for a total insured value of INR 46,00,000. Giriraj Amarnath, IBFI Lead Scientist and leader of the Water Risks and Disasters Research Group at IWMI, noted that 14 farmers, who suffered total crop loss, received the full insured amount of INR 20,000 per hectare. Other farmers received INR 7,000 to INR 14,000, depending on the extent of their crop losses.

The product has been subsidized with support from CCAFS and the Ministry of Agriculture, Forestry and Fishery (Japan) and piloted with a set of farmers in 200 household. For the purpose of avoiding delays, the project made the premium payments on behalf of the farmers. Further, the AICI has invested resources to market the product with communities for active participation in the product enrolment, among other considerations.

Elaborating on the inclusion of vulnerable women farmers in such schemes for social protection, Amarnath says:

Not only does index insurance help women stabilize their income and break the cycle of poverty when they experience unseasonal rain, it also enables the cooperative to further provide assistance on the social safety net and economic development of Bihar women and children."

Growing support for index-based flood insurance

Validation has also come in the form of mounting interest in IBFI from the government. At a multi-stakeholder event organized at the ICAR complex in Bihar last month, the Union Minister of Agriculture, Radha Mohan Singh, handed out "dummy cheques" to 15 of the 43 farmer beneficiaries. According to Alok K. Sikka, India representative at IWMI, the 43 beneficiaries received compensation via bank transfers, contributing to the nation’s vision of financial inclusion of marginal communities. Highlighting the success of the pilot, Sikka said, "It is a real test on the ground and we have succeeded".

Recognizing the potential to benefit millions, the Ministry of Agriculture has agreed to discuss the IBFI scheme further. In preliminary discussions, the Ministry suggested that the scheme could be taken up by insurance companies and implemented in large districts/states to identify gaps and challenges. IBFI could be considered as an associated product of Pradhan Mantri Fasal Bima Yojana, the government of India's flagship crop insurance scheme, which significantly lowers the premium burden for farmers.

As a way forward, discussions will be held with NGO partners with the aim of securing effective collaborations with insurance companies.

The World Bank has also expressed interest in scaling up IBFI in flood-prone districts across eastern India, following the successful implementation of the pilot in Bihar. Speaking about the opportunities for scaling with this multi-stakeholder support, Amarnath said, "We are hopeful that the outcome will be positive, allowing us to provide help to flood-affected farmers on a large scale in India."

Summarizing the need for IBFI, Pramod K. Aggarwal, Regional Program Leader for CCAFS South Asia, said, “Flood risk is a very real risk affecting the lives of millions of poor farmers every year, not just in India but in neighboring countries like Bangladesh and Nepal. The development and scaling of products like IBFI is a welcome move towards livelihood security and reducing overall agrarian distress”.